Kroger Evaluation of corporate performance
It is a public company that trades at NYSE and headquartered in Cincinnati. Kroger has its history dating to 1883 when its founder Barney Kroger invested $372 in a new venture. The entity was a grocery store located in downturn Cincinnati. According to (The Kroger Co. , 2017) the company recognizes that its customers look for food items that are brighter, lighter, easier and definitely healthier. In 2014 sales were $98,375m and $108,465m in 2015 whereas the 2016 figure was $109,830m. Another crucial trend within the five years relates to total assets. In 2013, the figure of total assets was $24,634m; it increased to $29,281m in 2014, $30,497m in 2015 whereas the 2016 amount was $33,897m. In 2017 it reached a peak of $36,505m. During the same five year period long term liabilities amounted to $9,359m in 2013, $13,181m in 2014, $13,663m in 2015, $14,128m in 2016 and $16,935m in 2017.
The other explanation is that total liabilities have increased over the five year period hence indicating that the funds are utilized in financing assets. It is clear that Kroger’s net worth has been on an increase hence both initiatives are gainful. Figure 2: Graph indicating trend in cash dividends From figure 2, cash dividends have been on an uptrend with 2017 recording the highest figure within the period under review. Given the trend seen in sales growth over the period, profits have not only been dedicated to increasing net worth but also benefiting shareholders through a growth in dividends. It can be held as a critical factor in attracting capital at Kroger since shareholders will enjoy dividend payments in cash. 4% decrease in average fuel cost prices.
The significant increase in sales volumes was also driven by the increase in the number of households shopping with Kroger accompanied by a product cost deflation to the extent of 0. The household factor is also two fold since Kroger recorded an increase in visits per household. This is attributable to its strategy of changing its product mix to include more variety hence meeting more customer needs. There were additional factors that were responsible for the sales increase. 8% in 2015 and 34. 1% in 2014. In 2016, the rate differed from the federal statutory rate mainly because of the recognition of excess tax benefits that were related to share based payments. In addition, domestic manufacturing deductions also contributed to the changes. Operating profit was a figure of $3.
In 2016, there was a merger with modernHEALTH whereas Kroger merged with Roundy’s in 2015. As a result, Kroger gained more floor space hence increasing other financial items such as sales. Impairment of long-lived assets was $26 million in 2016, $46 million in 2015 and $37 million in 2014. The figures are recognized via impairment for excesses of the carrying value over estimates of fair market value. The erratic pattern in this amount over the past three years has been seen owing to the different approaches to impairment calculation. The assumed extent will be 10% since there will be an increase in an equivalent margin to match the sales increase. The operating, general and administrative costs are expected to increase by 5% since management prudence is expected to contain unnecessary potential increases.
Likewise, the growth in remuneration has been seen in the last 3 years hence a turnaround is expected in this area. Rent expenditure is expected to remain flat since additional inventory will be accommodated within the facilities that have been acquired through mergers in the last 2 financial years. Depreciation and amortization are expected to remain flat since the current capacity will be adequate to accommodate increased sales. 50 Operating, general and administrative costs (20,136. 90) Rent (881) Depreciation and amortization (2,340) Operating profit 5,060. 60 Interest expense (522) Earnings before tax 4,538. 60 income tax (1,490. 48) Net earnings 3,048. This amount will increase by 15%. There will also be an increase in inventory estimated at 10% to match with sales increase. To match with the increase in sales, accounts payable will also increase since some inventory will be acquired on debt.
For the pro forma balance sheet, the figure will match with sales hence increasing by 10%. Due to the increase in sales, income tax payable will increase since there will be extra profits that are taxable. 85 Long-Term Debt 9,709 Provision for Risks & Charges 1,380 Deferred Taxes 1,752 Other Liabilities 1,287 Total Liabilities 28,102 Total Shareholders' Equity 6,873. 90 Accumulated Minority Interest -22 Total Equity 6,798 Liabilities & Shareholders' Equity 34,953. 90 The pro forma statement indicates that an increase in sales will lead to an increase in the overall value of Kroger. The initial value was $34,900 m (The Wall Street Journal, 2018). This indicates that the valuation will increase by ($34,953. It will be $28,102m/ $34,900m * 100 = 0. This ratio is too high since Kroger would have to sell over 80% of its assets to cover its liabilities.
The other ratio will be debt to equity ratio found out by total liabilities/ total equity. It is $28,102m/ $6,798m = 4. 13 indicating that Kroger’s funding has come from debtors more that it has from equity holders hence portraying more risk. This ratio is quite low hence showing that Kroger has limited capabilities in generating net income from its sales. The second will be return on equity ratio calculated by net income/ shareholders equity. The amount will be $1,957/ $6,873. The ratio is fairly impressive since investors can generate 28% returns for their investments in Kroger. Market value The first ratio will be book value per share. It will be $1,957m/ 854. 01m = $2. This is subjective depending on the investor. Debt The first will be debt ratio calculated by total debt/ total assets.
It is $28,102m/ $34,900m = 0. It will be $30. Since it is above 1, the implication is that P/BV for Kroger is attractive. Activity ratios The assets turnover ratio will be total sales/ total assets hence $115,337m/ $34,900m = 3. It indicates that $3. 30 in sales is realized from $1 in assets. DuPont Return on Equity = net profit margin * asset turnover * equity multiplier ROE = (net income/ revenue) * (revenue/ assets) * (assets/ shareholders equity) ROE = ($1,957m/ $115,337m) * ($115,337m/ $34,900m) * ($34,900m/ $6,820m) = 0. 287 equivalent to 28. 7% Management performance EVA = net operating profit after tax - (capital invested x WACC) EVA =$1,957m – ($6,820m * 10. 90m Recommendations From the analysis, Kroger seems to be in financial trouble. The ratios measuring multiple perspectives indicate that its shares are overvalued and that financial performance has been poor.
From $10 to earn access
Only on Studyloop